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Entry, Growth, and the Business Environment: A Comparative Analysis of Enterprise Data from the U.S. and Transition Economies

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  • J. David Brown
  • John S. Earle

Abstract

What role does new firm entry play in economic growth? Are entrants and young firms more or less productive than incumbents, and how are their relative productivity dynamics affected by financial constraints and the business environment? This paper uses comprehensive manufacturing firm data from seven economies (United States, Georgia, Hungary, Lithuania, Romania, Russia, and Ukraine) to measure new firm entry and the productivity dynamics of entrants relative to incumbents in the same industries. We contrast hypotheses based on “leapfrogging,” in which entrants embody superior productivity, with an “experimentation” approach, in which entrants face uncertainty and incumbents can innovate. The results imply that leapfrogging is typical of early and incomplete transition, but experimentation better characterizes both the US and mature transition economies. Improvements in financial markets and the business environment tend to raise both the entry rate and productivity growth, but they are associated with negative relative productivity of entrants and smaller contributions of reallocation to growth among both entrants and incumbents.

Suggested Citation

  • J. David Brown & John S. Earle, 2010. "Entry, Growth, and the Business Environment: A Comparative Analysis of Enterprise Data from the U.S. and Transition Economies," Working Papers 10-20, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:10-20
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    File URL: https://www2.census.gov/ces/wp/2010/CES-WP-10-20.pdf
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    Cited by:

    1. Huynh, Kim P. & Jacho-Chávez, David T. & Kryvtsov, Oleksiy & Shepotylo, Oleksandr & Vakhitov, Volodymyr, 2016. "The evolution of firm-level distributions for Ukrainian manufacturing firms," Journal of Comparative Economics, Elsevier, vol. 44(1), pages 148-162.

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